Since early 2020, the Canadian housing market has been increasing at a record pace. Rising housing costs combined with the increasing family needs of Canadian Millennials (ages 25-41) and the possibility of remote work have seen demand for housing surge across the country, and particularly in smaller markets like the British Columbia Interior.
First Time Home Buyers – Loans vs Gifts
With housing prices increasing 20% over 2021 alone, first time home buyers are in a pinch, and many are turning to the “Bank of Mom and Dad” for assistance with a down payment. While parental assistance is a wonderful resource for many young adults, it can lead to complications down the road if it is unclear if the assistance comes in the form of a loan versus a gift. This is particularly so in the event of divorce or if there are other siblings who have not received similar financial assistance.
Estate Planning to Mitigate Risk
Advance planning in this increasingly common scenario is strongly recommended so that the Bank of Mom and Dad and the fortunate recipients are all on the same page. Loan and/or gift agreements are simple yet strikingly effective tools to avoid complications down the road. These agreements can set out the terms of repayment and cover off various scenarios, like what would happen to the gift amount in the event of relationship breakdown or sale of the home in question, for example.
Further, with the drastic increase of housing prices and shortage of supply, advance planning surrounding the family home is absolutely necessary. As of February 2022, the median house price in Canada exceeded $815,000[1] – and these prices are projected to rise. In British Columbia, surviving children and spouses have the right to sue an estate for redistribution of assets if they perceive the division to be unfair. If an existing will is based on housing values from even a few years ago, it may no longer be equitable and could result in an unintended, uneven distribution of assets to beneficiaries.
Now, more than ever, it is critically important to have a valid will that accounts for the drastic increase in real estate value, as Wills Variation actions can arise over inequitable distribution of assets among surviving children and spouses.
Taking time to review your estate and account for significant increases in the value of your assets can avoid legal headaches and heartache down the road. In the world of estate planning, an ounce of prevention is very much worth a pound of cure. Fortunately, our team can help you with both.
If you have questions, contact our Wills & Estates Team – we’re here to help.
[1] “Average Canadian house price hits $816,720 – up 20% in past year”. CBC News. https://www.cbc.ca/news/business/crea-housing-february-1.6385274